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. Last Updated: 07/27/2016

Putin Demotes Adviser Illarionov

Itar-TassAndrei Illarionov speaking with Vladimir Putin at a G-8 summit in Canada in 2002.
President Vladimir Putin has stripped his maverick economic adviser Andrei Illarionov of one of his key duties in what seemed to be a warning to the controversial economist to end his criticism of Kremlin policies or face the sack.

The Jan. 3 announcement that Illarionov had been replaced as Russia's representative to the Group of Eight came just days after he unleashed his strongest public attack yet on the effective renationalization of the country's biggest oil company, Yukos.

In direct contradiction to Putin's staunch defense of Rosneft's takeover of its main production unit, Illarionov called it a "swindle." He said it was the "expropriation of private property" and could lead to "bloody consequences."

Also, moving beyond his economic brief to strike the Kremlin at one of its most sensitive spots following the revolution in Ukraine, he warned that Russia's dismantling of what he called an "early warning system" of democratic checks and balances by ending elections for regional governors and tightening control over the media could eventually lead to an overthrow of the regime.

"The amputation of [democratic] institutions leads to catastrophic consequences for the whole of society," he said in an interview on Ekho Moskvy radio on Dec. 30. "Because in that case problems are not resolved, they tend to accumulate and sooner or later they are directed at the center of the political system. Such crises are not resolved through elections. ... If there are no traditional, legal ways to resolve crises, there is no other way out but revolution.

"We will inevitably arrive there, if the trends we have today prevail," he said. "This is an extremely dangerous situation, more dangerous than the worsening quality of economic policy."

Four days later, the Kremlin announced that he had been replaced as "sherpa" to the G-8 by Igor Shuvalov, Putin's senior economic aide and a career technocrat who has publicly supported Kremlin handling of the Yukos affair. Illarionov for now retains his post as presidential adviser.

The radio interview built on an attack he launched at a Dec. 28 press conference in which he called state-owned Rosneft's purchase of Baikal Finance Group, the vehicle created to buy Yukos' core production unit Yuganskneftegaz to sidestep a U.S. court order, "the swindle of the year."

"We used to see street hustlers do this kind of thing. Now, officials are doing it," he said. "The Yukos case isn't about taxes, it's about expropriation of private property."

Putin, however, in his annual press conference on Dec. 23 said Rosneft's purchase was "perfectly normal" and absolutely in line with the law.

Illarionov has been a vocal critic of government policies ever since Putin appointed him as his economic adviser soon after his election in March 2000. From the country's ratification of the Kyoto Protocol to growing rates of inflation, he has railed against policies that he says have or could put the brakes on economic growth in often headline-grabbing rhetoric. He once called the Kyoto Protocol the equivalent of an economic "Auschwitz." But until his public tirade against the Yukos affair in December, he has always stopped short of contradicting Putin himself.

In rare public comments on Yukos last year, such as calling the decision to put Yuganskneftegaz up for sale "daylight robbery" in a telephone interview in November, he took care to distance Putin from decision-making. "It's hard for me to imagine that the president participated in such a decision," Illarionov said then.

But now by directly going against Putin's line on the Yugansk sale, he has overstepped the mark, according to one well-informed official. "Illarionov was in clear opposition to the position that the president laid out," the official said Monday, speaking on condition of anonymity. "It's hardly likely that the president liked this.

"There's nothing wrong in criticizing the Kremlin. The newspapers do so regularly. But if you are working in the Kremlin administration you should not criticize," he said. "You are a state official. You can resign and then talk. But if you are working in the Kremlin and the president is your boss, this is a different matter.

"It's a question of ethics," the official said.

Since his demotion, Illarionov has kept silent and refused any interviews on the matter.

The official said that Illarionov's demotion also was likely connected to preparations for Russia's chairmanship of the G-8, which is due to start in January 2006. "Illarionov ignored meetings on preparations for the chairmanship for reasons only known to himself," he said, adding that Shuvalov was well-qualified for the job.

United Financial Group's co-head of research Christopher Granville agreed that Illarionov's removal from his G-8 duties looked like a reasonable move amid preparations for Russia's chairmanship. "Illarionov was never particularly well-suited for a role generally occupied by a career bureaucrat trusted by the head of state and government. An economist who courts public controversy is not the profile you would expect for this job."

But others said the demotion appeared to be a warning to Illarionov after he directly contradicted Putin's policy for the first time and moved clearly into politics.

During Illarionov's interview, Ekho Moskvy conducted a telephone poll over whether he should stick it out in the Kremlin to continue to try and influence policy or quit. Of the 9,283 callers, 86 percent voted in favor of Illarionov staying.

In response, Illarionov said officials who had conducted policies that had dealt "a blow to the Russian economy should step down" as well as those who had dismantled the early warning system of democratic checks and balances.

"It's not clear whether Illarionov will stick to his guns and stay in his post now that he has been demoted," said his interviewer, Ekho Moskvy editor Alexei Venediktov. "This was the Kremlin's early warning system for Illarionov. It's too early to say what will happen."

At the earlier press conference, Illarionov had avoided questions from reporters about whether he planned to resign.

Lilia Shevtsova, senior political analyst at the Carnegie Moscow Center, said Illarionov was trying to get himself fired. "His criticism was very harsh and it was aimed at the president," she said. "But it's clear that Putin is going to do all that he can to make sure Illarionov is not fired and not turned into another political dissident. Illarionov will have to take very serious measures to get himself fired."

Illarionov has been convenient as a kind of medieval "court jester" and as the public face of pluralism and liberal economics in the Kremlin, Shevtsova and Granville said. Initially his public comments helped shape economic policy, such as via his criticism of electricity sector reform and on paying down Russia's international debts. But his recent opposition to Yukos' takeover has clearly fallen on deaf ears.

If he goes now, it will be a sign of the further waning of liberal policy makers' power as momentum for state intervention grows, Granville said.